Why the Sims (ASX:SGM) share price is surging 6% higher today

This ASX share is starting the week strongly…

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Blue light arrows pointing up, indicating a strong rising share price

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The Sims Ltd (ASX: SGM) share price has been a strong performer on Tuesday.

In morning trade, the scrap metal company’s shares are up 6% to a 52-week high of $17.69.

Why is the Sims share price charging higher?

Investors have been bidding the Sims share price higher today following the release of a very positive trading update this morning.

According to the release, the company’s businesses performed particularly strongly during the third quarter and are expected to continue this excellent form through the fourth quarter.

This is being driven by solid proprietary intake volumes, which have remained at around 95% of FY 2019’s average monthly volumes. In addition to this, the company is benefiting from gross margin per tonne improvements due to higher scrap prices and good margin management, and a significant contribution from SA Recycling. The latter is being underpinned by high prices for zorba linked products, good intake volumes, and good margin management.

Earnings guidance upgraded

The sum of the above is a significant increase in its earnings guidance for FY 2021.

The release explains that management is now expecting underlying earnings before interest and tax (EBIT) of $360 million to $380 million. This compares with its previous guidance range of between $260 million and $310 million.

Sim’s CEO and Managing Director, Alistair Field, said “In our April release we factored in justifiable concerns that the rapid rise in prices commencing in December 2020 contributed to exceptional EBIT that would not be sustained in the fourth quarter. It is pleasing that this is not the case and we are forecasting the fourth quarter to be as strong as the third quarter.”

However, it has warned that achieving the forecasted FY 2021 result assumes a successful June shipping schedule.

The Sims share price is now up 30% since the start of the year.

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James Mickleboro does not own any shares mentioned.The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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